How to fix Medicare the right way

Commentary: Make health care more efficient, don’t cut people off

WASHINGTON (MarketWatch) – The United States is not in a budget crisis, despite what we’re told constantly by the fiscal scolds who dominate our government and our media. Even they don’t believe that our deficits require urgent and drastic solutions, for if they did, they’d relish the prospect of going over the fiscal cliff.

The United States spends far more on health care than other advanced nations. That’s got to change.

The mad scramble to avoid the cliff by Republicans and Democrats alike proves that nothing compels us to bring down the deficits immediately. Other goals, such as economic growth, job creation and confidence in the economy, trump any worries we have about the hazards of running deficits over the long run.

The fiscal cliff may yet serve a useful purpose if it reminds us that, while deficits may be bad, there are worse things, such as stagnation, poverty and lack of opportunity. Perhaps we can finally put our budget problems in proper perspective.

Right now, our creditors are willing to lend us money, as long as we begin to chart ourselves a sustainable path. There’s no great need to raise taxes immediately, or cut spending immediately, or transform our great middle-class entitlement programs immediately.

Rushing into entitlement “reform” would be particularly foolish. Social Security hasn’t contributed to past deficits, and is projected to be able to pay all retirement benefits for decades to come (the disability program is a different story). There’s no need to cut benefits by raising the retirement age further or by changing the benefit formula. Making Social Security solvent forever is relatively easy to do.

McConnell outlines GOP wish list to avoid cliff

Health-care costs, however, are different matter. It’s no exaggeration to say that we don’t have a budget problem at all; we have a health-cost problem. And that problem extends to all health-care spending, whether funded by taxpayers or not.

Thinking of health care as a federal budget problem — as Paul Ryan does — distracts us from the task of lowering costs throughout the health-care system. We must “bend the cost curve,” not just to rein in our public debt, but to improve our competitiveness.

Health care in the United States is 50% to 90% more expensive per person than it is in other developed countries, and if we want to compete with them, we must get our costs closer to theirs.

We can no longer afford the most inefficient health-care system on the planet.

But we have years, if not decades, to find all the solutions; we don’t have to fix this in the next 28 days. And the good news is that we’ve already begun the process. It’s called Obamacare.

There is a right way and a wrong way to fix Medicare and the rest of our health system.

The wrong way is to assume that the largest economy in the world can’t afford to provide its people adequate health care. If Cuba can do it, so can we.

Reducing care, or shifting costs onto patients or state governments, could make the federal budget look better, but it won’t do anything to make our people healthier or to reduce costs to help us become more competitive.

President Barack Obama and the Democrats are right to reject Republican demands that we raise the eligibility age for Medicare to 67; that would reduce federal spending, but it wouldn’t save money. Indeed, forcing people who are 65 and 66 to remain in the private insurance system would increase total health-care spending, because Medicare is much more efficient at delivering care than the private sector is.

Costs in the private sector have been rising much faster than costs for government-provided care. Over the next nine years, the Centers for Medicare and Medicaid Services projects that per-enrollee costs for private insurance will rise about 5% per year, about 1% faster than the 4.1% growth in nominal per-capita gross domestic product. At the same time, per-enrollee costs for Medicare will rise about 3.8% and Medicaid costs will rise about 3.6%.

Although costs in Medicare and Medicaid aren’t growing out of control, we do need to contain those costs as much as we can. These programs are growing rapidly because of the explosive growth in the over-65 population and because Medicaid will cover millions of previously uninsured people.

So, how can we control costs without reducing the quality or accessibility of care? Experts in the field have lots of ideas, some of which are being implemented as part of Obamacare. One key tactic is to take advantage of market incentives to change behaviors and bring down costs.

First, we need to change the incentives that drive doctors, hospitals and other providers to give too many tests and to provide too many treatments that aren’t effective. Tort reform could help end defensive medicine, but the biggest gains would come from changing the way doctors and hospitals are paid so they would be rewarded for good outcomes rather than for the quantity of procedures done.

Second, we need to use the market clout of the government to negotiate better terms, especially from drug companies and insurance companies. These industries have been extracting monopoly rents for too long.

Third, we need to change the incentives for patients. If we require patients who have the means to make modest co-payments or deductibles, we can encourage more selective use of the health-care system.

Finally, we need to change the unhealthy behaviors that lead to chronic disease. We need to stop stuffing our faces with calories, stop smoking, get off the couch and get some exercise. If you care about the deficit, lose some weight and live a healthier life.

Before we take the radical step of restricting access to health care, we should do all we can to make health care more efficient. More than our federal budget is at stake.

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